The Facebook dilemma: how to raise revenue without being defriended

Late last week, Facebook broke the news of another major change to users’ news feeds, sparking interesting discussion across the globe. Described by Mark Zuckerberg as your new“personal newspaper,” the new Facebook news feed claims to make your Facebook experience more visually appealing, with pictures and videos set to stand out. This is the latest shake-up that Facebook has thrown at its users, and it is aimed at re-energising the site.

Facebook wants people to break out of their habitual check-ins and spend more time browsing. By integrating several new tabs (friends, following, groups, music, pages and more), Facebook hopes to increase engagement on their site. It’s not just because Facebook wants you to become more connected; it also wants to generate more advertising revenue.

Over the past year, Facebook has started to feel the pinch. Facebook initially shot to viral status shortly after being launched by Zuckerberg in 2004, but has recently been met with more competition. Other social networks such as Instagram (now owned by Facebook), Pinterest and Twitter are gaining a larger share of the market, and this has Facebook worried. Since theIPO last year, Facebook share prices have fallen more than 30%, though Facebook has recently surpassed 1 billion monthly active users. With its share price slumping, Facebook has turned to another revamp in order to regain its former glory.

Monetising Facebook has been a constant struggle. Facebook users have accepted the introduction of Facebook ads in 2007, Facebook credits in 2009 to allow users to play games and apps on the site (though this looks set to change in the near future), and most recently sponsored and promoted posts in 2012.

Facebook has tried to make a distinct move away from only offering advertisements. This is because consumers have resoundingly responded negatively to the increasing advertising on the site. Users want to enjoy a clean, uncluttered news feed so that they can socialise with their friends. Each ad takes away a little of the trust that users have in the site.

Google vice-president of product for Google+, Bradley Horowitz, has recently come out and attacked other profit-hungry social networks when he commented that Google+’s approach to advertising is more elegant and effective for advertisers, and less intrusive, awkward and condescending than Facebook’s approach. On the other hand, there have been complaints from advertisers that their posts on Facebook aren’t being seen, and Zuckerberg has been criticised in the past for failing to monetise mobile users, which now make up more than half of all daily active users.

It seems that no matter what changes Facebook brings in, neither advertisers nor users will be satisfied. But with over 1 billion monthly active users, satisfying everybody was never the objective. Facebook is still a business, and if users want to continue to access their favourite social network for free, they need to recognise that somebody if funding their social network usage. Facebook promises its users on its homepage that “it’s free and always will be”. In order to continue to be available for free to users, Facebook will have to increase their income streams.

This is going to be a fine line to walk. As a publicly traded company — responsible also to its shareholders — Facebook must focus on increasing revenue. On the other hand, they will have to concentrate hard on not alienating and annoying users so much that they leave the site. The value of the site diminishes with each person that leaves, which could lead Facebook to collapse. It’s happened before: MySpace, Friendster and Digg all failed to keep up with changing consumer preferences.

Something’s gotta give. In this case, it will be the consumers who are already emotionally invested in the site; it holds their pictures, a link to their friends and their social history. If consumers don’t want to pay for access to the site, Facebook will have to look to further integrate other forms of advertising. This leaves the question: what degree of monetisation will Facebook users accept? Only time will tell.